Fifteen analysts surveyed by Bloomberg expect prices to rise next week, 14 were bearish and a further five were neutral. Gold tumbled 13% in the two sessions through April 15, the biggest drop in 33 years, on concern European governments would follow Cyprus in selling off reserves, while an unanticipated slowdown in Chinese growth sparked declines across commodities. In the past four days, bullion has rebounded about 3.7% on the Comex in New York.

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Asian buyers have stepped up bullion purchases since prices fell, with imports by India, the world’s biggest consumer, expected to jump by 36% through June compared with a year earlier, the Bombay Bullion Association Ltd. said. Australia’s Perth Mint said April 17 that sales doubled from last week.

Gold retailers struggled to cope this week as parents buying dowries, casual shoppers and tourists snapped up bars, coins, nuggets and jewellery as a slump in the price of the yellow metal released years of pent-up retail demand.

The price decline in the past week, the steepest in 30 years, has tarnished gold’s appeal for the portfolio investors whose money had fuelled a 12-year bull run. As investors rush out, consumers that were priced out of the market for years have rushed in.

Lam Yik Fei/Bloomberg

“It’s just like the sales after Christmas,” said Nigel Moffatt, treasurer at Perth Mint, which refines between 300 and 400 tonnes of precious metals each year at what it says is the largest facility in the southern hemisphere.

“Anything you could buy US$200 cheaper today than you could last week becomes fairly tempting. It is surprising how such enormous liquidation brings such enormous interest at the other end from small investors. What we keep in terms of retail stocks, yes, they are being depleted fairly quickly. As usual, it appears that China is leading the charge.”

India is the world’s top gold consumer, accounting for 20% of global demand. The fall in prices is well-timed for consumers there, coming during the wedding season and ahead of the festival of Akshaya Tritiya, which falls next month and during which gold buying is traditional.

“My sales are 50% more than last year … and we expect good business to continue as weddings will last till July,” said Kumar Jain at his shop in Zaveri Bazaar, India’s biggest gold market, in Mumbai.

Jewellery is traditionally part of dowries in India, where parents give gold to their daughters at weddings.

“We got to know from a news channel that prices are down, so we came to buy a gift for our nephew, who is getting married… I even think this is once in a lifetime opportunity,” said 41-year old Rajesh Mehta, who bought 22 grams of gold in two chains worth more than 50,000 Indian rupees (US$920).

Banks have hiked premiums for gold bars in India to US$1.75 to US$2.25 an ounce above spot London prices, up from US$1.25 to US$1.50 last month. One wholesaler said demand was so strong that the wait for gold bar deliveries was 10 days instead of one or two.

Gold bar premiums reflect the strength of retail demand and have rallied to multi-month highs across Asia this week as sellers in the region and their suppliers in Europe strained to keep up.

In Hong Kong, the source of much of the gold imported by the world’s second-largest consuming country China, premiums jumped to a 15-month high at US$2 an ounce over the spot London prices.

Suppliers are struggling to cope with demand.

“We are completely sold out for the next few weeks and if you want to buy now the earliest delivery would be in two weeks’ time,” said Bernard Sin, senior vice president at MKS Capital, a Swiss-based precious metals company which runs one of the biggest gold refineries in Switzerland and supplies Asia.

“Demand is incredibly high in Thailand, Malaysia, Singapore.”

Retail demand in Europe and the United States has also picked up. Britain’s Royal Mint has boosted output for gold coins.

“Since the dip in the price of gold we have seen increased demand for our gold bullion coins from the major coin markets,” said Shane Bissett, the Royal Mint’s director of bullion and commemorative coins. “The Royal Mint … is increasing production to accommodate the higher demand.”

In the United States, sales of American Eagle gold for two days this week topped the volumes for the whole of March.

At the Sydney showroom of ABC Gold Bullion, Australia’s largest independent bullion trader, the queue was around 30 deep early on Friday.

The company has had to hire temporary staff to help deal with the flood of interest, phone and walk-in sales, said Jordan Eliseo, chief economist at ABC Bullion.

“When they see the gold price drop this low, they don’t see ‘collapse’, they see ‘bargain’ and move in to buy heavily,” Eliseo said.

Hedge funds have reduced bets on higher prices by 72% since October while Goldman Sachs Group Inc. and Societe Generale SA predicted declines.

“Clearly a lot of psychological damage has been done, as well as the practical damage of margin calls on leveraged positions and collateralized gold so we should not expect a recovery as quick as the decline,” said Adrian Day, who manages about $160 million of assets as president of Adrian Day Asset Management in Annapolis, Maryland. “The drop seemed very overdone to me.”

Gold has become more favorable to some investors after prices dropped. Economist Dennis Gartman, who writes the daily Gartman Letter from Suffolk, Virginia, said Thursday he would buy gold and sell equities after the precious metal failed to break through lows set earlier in the week. Investor Jim Rogers said April 15 that he may begin buying bullion “if it goes down enough.”

Fund Outflows

Exchange-traded funds linked to gold have dropped $37.2 billion in 2013, the fastest pace in two years, according to EPFR Global. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, have dropped to the lowest since April 2010, according to data on the fund’s website.

“I don’t think we will see another 10% drop in the very short term, and there could even be a rebound in the medium term, but the gold bull market definitely seems to be over,” Filip Petersson, a commodities strategist at SEB AB in Stockholm, said in an interview yesterday. “As long as outflows continue gold will have a hard time rebounding.”

Central Banks

Central banks are divided on whether gold is cheap enough to increase investment, after the two-day plunge through April 15 wiped $560 billion from the value of reserves. Sri Lanka’s central bank governor said falling prices are an opportunity for nations to raise gold reserves and that the island nation will consider buying more.

The Bank of Korea said the plunge isn’t a “big concern” because holding the metal is part of a long-term strategy for diversifying currency reserves. Reserve Bank of Australia’s assistant governor, Guy Debelle, said at a business lunch in Canberra on April 16 that gold has no “intrinsic value.”

Goldman Sachs predicts gold prices will reach $1,390 an ounce in New York in 12 months, with the target for the end of 2014 at $1,270. Prices may drop below $1,200 temporarily, Jeffrey Currie, the bank’s global commodities research head, said April 17. Societe Generale said April 2 that gold may fall to $1,375 an ounce by year-end.

Deutsche Bank AG said Thursday the precious metal has entered a “new reality” and may need to fall as low as $1,050 an ounce to bring its valuation versus other commodities back to historical averages.